UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2025 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _______ Commission File Number: 001-40793 OCEAN BIOMEDICAL, INC. (Exact Name of Registrant as Specified in its Charter) Delaware 87-1309280 55 Clav ...

Financial Performance and Capital Requirements - The company has incurred significant net losses since inception and is expected to continue incurring substantial net losses for the foreseeable future[21] - The company requires substantial additional capital to finance operations, and failure to raise such capital may force delays or reductions in research and drug development programs[21] - The company may face increased regulatory costs and compliance requirements in drug development, impacting financial performance[17] - The company is subject to ongoing regulatory obligations and continued review, which may result in significant additional expenses[22] Operational Risks - The company relies on third-party manufacturing and supply vendors, which may lead to limitations or interruptions in the supply of development materials[21] - The market opportunities for the company's product candidates may be relatively small, targeting patients ineligible for or who have failed prior treatments[21] - The company has identified material weaknesses in internal control over financial reporting, which could affect the accuracy of financial condition reporting[22] - The company has entered into agreements that may impose obligations, and failure to comply could result in loss of important rights[21] Stock and Securities - The company is classified as an "emerging growth company," which may make its securities less attractive to investors[22] - The company may experience volatility in stock price and warrants, posing risks to investors[22] - Each new non-employee director is granted a one-time stock option to purchase 75,000 shares at a strike price of $10.00 per share[884] - The estimated fair value of the stock options on the grant date was $3.73 per share, resulting in stock-based compensation expenses of $0.7 million for fiscal year 2024 and $0.6 million for fiscal year 2023[885] - The Backstop Put Option Liability has an estimated future stock price range of $0.17 to $0.55, with an expected volatility of 147.5% and a risk-free rate of 4.17%[890] - The 2024 Convertible Note has an estimated volatility of 55%, a risk-free rate of 4.37%, and a probability range of 0% to 65%[892] - The SPA Warrants have an estimated volatility of 115%, a risk-free rate of 4.29%, and a probability range of 0% to 65%[892] - The fair value of the Ayrton Note Purchase Option was determined to be zero as of December 31, 2024, and 2023[893] Company Structure and Reporting - The company operates as one reportable segment focused on discovering and developing therapeutic products in oncology, fibrosis, infectious diseases, and inflammation[895] - The company has no off-balance sheet arrangements during the periods presented[896] - The company adopted ASU 2020-06 effective January 1, 2023, which simplifies accounting for convertible instruments[897] - The company is classified as a "smaller reporting company" with an expected market value of stock held by non-affiliates less than $700 million and annual revenue below $100 million[901]

Core Insights - Ocean Biomedical, Inc. has received a patent grant from the China National Intellectual Property Administration (CNIPA) for its bispecific antibodies targeting CHI3L1 and PD1, aimed at enhancing T cell-mediated cytotoxic effects on tumor cells [1][2]. Intellectual Property and Market Position - The newly issued patent strengthens Ocean Biomedical's intellectual property portfolio and provides protection in one of the largest pharmaceutical markets globally [2][5]. - The granted claims cover the novel design and therapeutic applications of bispecific antibodies that inhibit CHI3L1 and PD1, which are crucial in immune evasion by tumor cells [2][3]. Technological Innovation - Ocean Biomedical's bispecific antibody technology represents a potential paradigm shift in cancer immunotherapy by targeting both CHI3L1 and PD1, which may enhance the immune system's ability to combat tumors more effectively than existing treatments [3][4]. - This dual-targeting approach could lead to more durable responses and better patient outcomes by blocking two key pathways that tumors use to suppress the immune response [4]. Strategic Vision - The patent grant is viewed as a significant milestone in the company's global expansion strategy, highlighting the novelty and therapeutic potential of its bispecific antibody platform [4]. - Ocean Biomedical is committed to leveraging its robust patent estate to drive the development and commercialization of novel immunotherapies [5][6]. Collaboration and Development - The company plans to continue collaborating with leading researchers, biopharma partners, and regulatory agencies to accelerate the translation of its discoveries into transformative therapies [6].

Core Viewpoint - Ocean Biomedical, Inc. has received a patent grant from the China National Intellectual Property Administration for its bispecific antibodies targeting CHI3L1 and PD1, which are designed to enhance T cell-mediated cytotoxic effects on tumor cells [1][2]. Group 1: Patent and Intellectual Property - The newly issued patent strengthens Ocean Biomedical's intellectual property portfolio and provides protection in one of the largest pharmaceutical markets globally [2]. - The granted claims cover the novel design and therapeutic applications of bispecific antibodies that inhibit CHI3L1 and PD1, which are key targets in immune evasion by tumor cells [2][3]. - This patent follows the company's success in securing intellectual property protection in key markets, including the United States and Europe [5]. Group 2: Technology and Innovation - Ocean Biomedical's bispecific antibody technology represents a potential paradigm shift in cancer immunotherapy by targeting both CHI3L1 and PD1, which could enhance the immune system's ability to combat tumors more effectively [3]. - By blocking both pathways, these antibodies may lead to more durable responses and better patient outcomes compared to existing treatments [3][4]. - The technology aims to address limitations of current immunotherapies, which are often hindered by tumor resistance and immune evasion mechanisms [4]. Group 3: Strategic Goals and Collaborations - The patent grant is viewed as a significant milestone in the company's global expansion strategy, highlighting the novelty and therapeutic potential of its bispecific antibody platform [4]. - The company plans to continue collaborating with leading researchers, biopharma partners, and regulatory agencies to accelerate the translation of its discoveries into transformative therapies [6].

Company Overview - Ocean Biomedical has announced research findings showing its cancer immunotherapy candidates can synergize with tyrosine kinase inhibitors (TKIs) like osimertinib, which are used for treating non-small cell lung cancer (NSCLC) [1][2] - The proprietary candidates have demonstrated the ability to restore treatment sensitivity after resistance to osimertinib develops, indicating a potential shift in treatment paradigms for EGFR-mutant NSCLC [1][2] Research and Development - The research, led by Dr. Jack A. Elias in collaboration with Yale and Brown University, highlights the role of chitinase 3-like-1 (CHi3L1) in EGFR-mutant cancers and the ability of Ocean's antibody to suppress CHi3L1 activity, resulting in significant tumor reduction [2] - Ocean Biomedical is initiating preclinical studies to advance its immunotherapy program and plans to engage with the FDA to establish a regulatory pathway for first-in-human trials [3][10] Industry Context - The oncology field is increasingly focusing on bispecific antibodies, which target multiple cancer mechanisms simultaneously, with significant investments from leading biotech and pharmaceutical companies [4][5] - Merck's acquisition of LaNova's LM-299 for $588 million, a PD-1/VEGF bispecific antibody, underscores the high-value potential of this technology, suggesting a significant opportunity for Ocean Biomedical [5] Product Development - Ocean has developed bispecific antibodies that combine its anti-CHI3L1 antibody with anti-PD-1 or anti-CTLA4, showing impressive efficacy in preclinical models for NSCLC, malignant melanoma, and glioblastoma [6] - The company's lead oncology program is positioned for multiple therapeutic applications, including as a standalone therapy for EGFR-mutant NSCLC, in combination with existing TKIs, and as a salvage therapy for resistant tumors [9] Strategic Positioning - Ocean Biomedical's Board Chair, Dr. Chirinjeev Kathuria, emphasized the company's strategic positioning to capitalize on the shift towards next-generation bispecific antibodies, which could drive significant value for patients and investors [7]

Core Insights - Ocean Biomedical has received significant funding from the NIH to advance malaria vaccine research led by Dr. Jonathan Kurtis [1][6] - The FDA's new guidance on lipid-encapsulated vaccines may expedite the development of Ocean Biomedical's innovative malaria vaccine approach [1][5] Company Overview - Ocean Biomedical is a biopharma company based in Providence, Rhode Island, focused on developing and commercializing scientifically compelling assets from research institutions [9][10] - The company is currently working on five promising discoveries, including treatments for malaria, lung cancer, and brain cancer [10] Research and Development - Dr. Kurtis and his team have identified a unique protein, GARP, on malaria-infected red blood cells, which is linked to natural resistance in children [3][4] - The research team is testing three vaccine candidates in non-human primates, supported by a $4.6 million grant [4] - An additional $3.5 million NIH grant was secured to further identify vaccine targets against severe malaria in children [6] Market Context - Malaria is a significant global health issue, causing over 500,000 child deaths annually in sub-Saharan Africa [2][8] - The FDA's guidance on lipid-encapsulated mRNA vaccines could facilitate a faster transition to human trials, with potential trials starting as early as Q4 2025 [5]

Financial Performance - Net loss for the three months ended September 30, 2024 was $5,528,000 compared to a net loss of $14,087,000 for the same period in 2023, representing a 60.8% improvement[19]. - For the nine months ended September 30, 2024, the company reported a net loss of $9.763 million, a significant improvement compared to a net loss of $97.610 million for the same period in 2023[30]. - The net loss per share for the three months ended September 30, 2024 was $0.20, compared to $0.53 for the same period in 2023, indicating a 62.3% improvement[19]. - For the nine months ended September 30, 2024, the net loss was $9.8 million, compared to $97.6 million for the same period in 2023, with a basic and diluted net loss per share of $0.36 and $3.76, respectively[212]. Assets and Liabilities - Total current assets decreased from $2,109,000 in December 31, 2023 to $1,042,000 as of September 30, 2024, a decline of approximately 50.6%[17]. - Total liabilities increased from $96,264,000 in December 31, 2023 to $99,217,000 as of September 30, 2024, an increase of about 2%[17]. - The accumulated deficit increased from $196,055,000 as of December 31, 2023 to $205,818,000 as of September 30, 2024, reflecting a worsening of about 4.3%[17]. - Total stockholders' deficit increased from $90,763,000 in December 31, 2023 to $98,085,000 as of September 30, 2024, an increase of about 8.5%[17]. - The company has a working capital deficiency of $32.6 million as of September 30, 2024, raising substantial doubt about its ability to continue as a going concern[39]. Operating Expenses - Operating expenses for the three months ended September 30, 2024 were $768,000, down from $2,655,000 in the same period of 2023, a reduction of approximately 71%[19]. - General and administrative expenses decreased from $2,350,000 in Q3 2023 to $768,000 in Q3 2024, a reduction of approximately 67.3%[19]. - Research and development expenses were $26,000 for the three months ended September 30, 2024, a significant decrease from $305,000 in the same period of 2023[19]. Cash Flow and Financing - The company had cash and restricted cash of $0.240 million at the end of the period, down from $1.031 million at the end of September 2023[30]. - The company reported net cash used in operating activities of $1.660 million for the nine months ended September 30, 2024, compared to $8.563 million for the same period in 2023[30]. - The company expects to utilize proceeds from the Backstop Agreement and future debt and equity financings to fund operations and advance research and development programs[40]. - The Company entered into a securities purchase agreement for the sale of up to $27.0 million in Senior Secured Convertible Notes, with an initial Note of $7.6 million issued[64]. Stock and Warrants - The weighted average shares outstanding increased from 26,605,147 in Q3 2023 to 27,487,283 in Q3 2024, an increase of approximately 3.3%[19]. - The Company has 13,935,001 warrants outstanding as of September 30, 2024, with various exercise prices ranging from $1.50 to $11.50[189]. - The Company issued a total of eight warrants exercisable to purchase an aggregate of 1,039,054 shares of common stock to Second Street Capital, recognizing $1.5 million in other expense for the nine months ended September 30, 2023[200]. Compliance and Regulatory Issues - As of September 30, 2024, the Company is in default of obligations related to Ayrton LLC due to delinquent SEC filings[75]. - The Company received notices from Nasdaq regarding non-compliance with filing requirements, but submitted a revised plan to regain compliance[165]. - The Company is currently in a compliance period to regain compliance with Nasdaq's minimum bid price requirement of $1 per share, expiring on June 2, 2025[167]. Research and Development - The company incurred research and development expenses primarily related to stock-based compensation and licensing agreements, with no revenue generated since inception[52]. - For the three months ended September 30, 2024, Virion incurred a net loss of approximately $1.0 million, with the Company recording its share of this loss as approximately $0.5 million[170]. Agreements and Contracts - The Company entered into a Contribution Agreement with Virion Therapeutics, acquiring a 50% membership interest for an initial contribution of $4.1 million in cash or 750,000 shares of common stock[169]. - The latest amendment on November 13, 2023, requires the Company to raise at least $10.0 million in equity financing by May 1, 2024, or Elkurt can terminate the agreements[214]. - The Company entered into four Exclusive License Agreements with Elkurt, Inc., which were amended in 2021 and 2022[213]. Stock-Based Compensation - The Company recorded stock-based compensation expenses of $0.2 million and $0.6 million for the three and six months ended September 30, 2024, respectively[178]. - As of September 30, 2024, the total unrecognized compensation related to unvested stock option awards was $1.1 million, expected to be recognized over approximately 1.4 years[179].

Financial Performance and Losses - Net loss for the three months ended June 30, 2024, was $17.234 million, compared to $11.431 million for the same period in 2023[390] - Net loss per common share for the three months ended June 30, 2024, was $0.63, compared to $0.43 for the same period in 2023[390] - The company's net loss for the six-month period ended June 30, 2024 was $17,234, contributing to an accumulated deficit of $200,290[59] - Net loss for the three months ended June 30, 2024, was $17.234 million, compared to $11.431 million in the same period in 2023[65] - Total operating expenses for the three months ended June 30, 2024, were $682 thousand, down from $2,832 thousand in the same period in 2023[65] Equity and Stock Issuances - The company issued 13,257 shares of common stock with a fair value of $83 thousand as consideration for a Marketing Services Agreement in Q2 2023[383] - The company had 34,868,628 shares of common stock outstanding as of June 30, 2024[5] - The company's weighted-average shares of common stock outstanding for the three months ended June 30, 2024, were 27,487,283[390] - The company issued warrants for 511,712 shares of common stock at an exercise price of $8.06 per share and 102,342 shares at $7.47 per share[226] - The company has 600,000 stock options outstanding as of June 30, 2024, with a weighted average exercise price of $10.00 and a remaining contractual life of 1.7 years[55] Licensing and Agreements - The company must raise at least $10.0 million in equity financing by May 1, 2024, to avoid termination of certain license agreements[391] - The company recorded annual license maintenance fees of $12,000 for the six-month periods ended June 30, 2024, and 2023[397] - As of June 30, 2024, the company had $0.1 million in accrued expenses related to license fees[397] - The company entered into an amendment with Virion in September 2024, agreeing to contribute $9.0 million in cash and/or shares to increase its ownership interest to 22%[412] Debt and Financing - The Company received a notice of default for $2.1 million, including $1.6 million in unpaid principal and $0.5 million in accrued interest[413] - The principal amount of the Existing Note is $9.7 million, including Event of Default Interest and Redemption Premium[418] - The Company's available cash must equal or exceed $3.0 million at each Additional Closing, and the ratio of outstanding principal to market capitalization must not exceed 35%[208] - The Company entered into a Securities Purchase Agreement for up to $27.0 million in Senior Secured Convertible Notes, with an initial note of $7.6 million[200] - The principal amount outstanding under the 2023 Convertible Note was $7.6 million as of June 30, 2024[201] - The Company is required to pay $0.5 million and $1.2 million towards outstanding loans upon the first and second Additional Closings, respectively[204] - The Company recognized $0.1 million and $0.2 million of interest expense on the McKra Loan for the three and six months ended June 30, 2024, respectively[205] - The Company borrowed $0.7 million under the March Second Street Loan with a 15% interest rate[190] - The Company is required to pay $0.5 million towards outstanding loans upon certain closings[195] - The company borrowed $1.0 million from McKra Investments III in March 2023, with a 15% annual interest rate and a $0.2 million loan fee[193] - The company recognized $0.1 million in interest expense on Second Street Loans for the three months ended June 30, 2024, compared to $0.3 million in the same period in 2023[192] Investments and Acquisitions - The Company acquired a 50% membership interest in Virion for an initial contribution of $4.1 million or 750,000 shares of common stock[40] - The Company increased the liability for the post-closing true-up to $3.2 million and recorded a $1.9 million expense for the change in fair value of the Virion Contribution Liability[40] - Virion incurred a net loss of $1.1 million for the three-month period and $5.6 million for the six-month period ended June 30, 2024, with the company recording its share of the loss as $0.6 million and $2.8 million respectively[41] - The company acquired all outstanding capital stock of Legacy Ocean for approximately $240.0 million in aggregate consideration before transaction and other fees[85] Revenue and Expenses - The company has not generated any revenue since its inception and does not expect to generate revenue from product sales in the foreseeable future[95] - Research and development expenses for the three and six months ended June 30, 2024 included costs for stock-based compensation, initial license fees, annual maintenance license fees, and services agreements[104] - The company incurred $0.1 million in reimbursed patent costs for the six months ended June 30, 2024, down from $0.2 million in the same period in 2023[229] - Stock-based compensation expense for the three-month and six-month periods ended June 30, 2024 was $0.2 million and $0.4 million respectively[54] Cash and Liquidity - The company had minimal cash or cash equivalents as of June 30, 2024 and December 31, 2023[100] - Net cash used in operating activities for the six-month period ended June 30, 2024 was $775, compared to $7,433 in the same period in 2023[71] - The company expects to use proceeds from the Backstop Agreement and future debt and equity financings to fund operations[87] Fair Value and Liabilities - The fair value of the Ayrton Note Purchase Option was recorded at $0.3 million initially but was determined to be zero as of December 31, 2023[209] - The Company recorded a liability of $0.5 million for the Ayrton Note Purchase Option, measured using the Black-Scholes Merton model[139] - Total financial liabilities measured at fair value were $68.4 million as of June 30, 2024[180] - The Backstop Put Option Liability had a fair value of $55.9 million as of June 30, 2024[184] - The company measures the fair value of the Backstop Put Option Liability on a recurring basis, with any fair value adjustment recorded within other income (expense)[120] - The company elected to account for the Notes at fair value under the fair value option, with changes in fair value reflected within other income (expense)[130] Legal and Compliance - The company received notices from Nasdaq regarding non-compliance with the timely filing requirement for continued listing[215] - The company filed the delinquent Form 10-K on November 25, 2024 and intends to file the delinquent 10-Qs as soon as practicable[216] - Vellar claims $6.7 million in Maturity Consideration due to alleged failure to register shares[158] Shareholder and Backstop Agreements - The company is obligated to pay the Backstop Parties an amount equal to the product of 8,000,000 shares less Terminated Shares multiplied by $2.50 upon the Maturity Date[112] - The Backstop Parties have purchased a fixed total of 4,885,466 shares of the company's common stock[113] - The Backstop Parties purchased 3,535,466 shares of AHAC's Class A common stock for $10.56 per share, totaling $37.3 million[154] - The Company issued 1,350,000 newly issued shares to Polar at a per share purchase price of approximately $10.56, totaling $14.3 million[154] - The Prepayment amount was $51.6 million, consisting of $37.3 million for the Recycled Shares and $14.3 million for the Polar Subscription shares[155] - Vellar agreed to purchase up to 8,000,000 shares of AHAC's Class A common stock for $80.0 million[161] - The Company has the right to sell up to $75.0 million in newly issued shares to White Lion[168] - The Company received net proceeds of $1.4 million after selling 143,261 Backstop Shares and paying related fees[157] - The Company may issue up to 19,000,000 Earnout Shares to Legacy Ocean Stockholders based on VWAP triggers[151] Other Financial Metrics - Total assets decreased from $5,501 in 2023 to $1,851 in 2024, with a significant reduction in the investment in Virion from $3,392 to $574[63] - Accounts payable and accrued expenses increased to $17,180 thousand as of June 30, 2024, up from $16,185 thousand at December 31, 2023[185] - The Company recognized a loss on extinguishment of debt of $13.6 million for the issuance of the Sponsor Extension Shares[172] - The Company issued 1,365,000 shares of Class A common stock to the Sponsor in consideration for obtaining extensions beyond the September 2022 deadline[148] - The Company issued Converted Ocean Warrants exercisable for 511,712 shares at $8.06 per share and 102,342 shares at $7.47 per share[149] - The Company converted $1.6 million of the Underwriter Promissory Note into 169,582 restricted shares[174] - The Company recorded $0.3 million in interest expense for the six months ended June 30, 2024[173] - The Company has not included future milestone payments in its condensed consolidated balance sheets[30] - AHAC issued approximately 23,355,432 shares of Class A common stock with an aggregate value of $233.6 million to Legacy Ocean's security holders[147] - The company is evaluating the effect of adopting ASU No. 2023-09, which enhances income tax disclosures, effective for fiscal years beginning after December 15, 2024[134] - The company has recorded a full valuation allowance to reduce its net deferred income tax assets to zero, with no provision for income taxes due to operating losses[106]

Financial Performance - The company reported a net loss of $72.1 million for the three months ended March 31, 2023, but reflected a net income of $13.0 million for the three months ended March 31, 2024, primarily due to a gain from the Backstop Put Option Liability[46]. - The net loss for the three months ended March 31, 2024, was $12.999 million, compared to a net loss of $72.092 million for the same period in 2023[94]. - The net income for Q1 2024 was $12,999, compared to a net loss of $72,092 in Q1 2023, representing a significant turnaround[73]. - Total operating expenses for Q1 2024 were $595, a decrease of 88% from $5,387 in Q1 2023[73]. - Research and development expenses for Q1 2024 were $26, a significant reduction from $393 in Q1 2023[73]. - General and administrative expenses decreased by $4.425 million to $569 thousand for the three months ended March 31, 2024, primarily due to reductions in professional service fees, stock-based compensation, and insurance costs[138][141]. Cash and Liabilities - As of March 31, 2024, the company had a stockholders' deficit of $75.8 million, down from $90.8 million as of December 31, 2023[46]. - Current liabilities were reported at $30.1 million as of March 31, 2024, compared to $30.0 million as of December 31, 2023[46]. - Cash and restricted cash at the end of Q1 2024 was $1,004,519, compared to $34,306 at the end of Q1 2023[77]. - Total liabilities decreased to $78,729 from $96,264 year-over-year[70]. - As of March 31, 2024, the company had cash of $19 thousand, restricted cash of $0.5 million, and a working capital deficiency of $28.3 million[120]. - The company has outstanding accounts payable and accrued expenses of $16.9 million as of March 31, 2024, which will be paid off utilizing future proceeds from current and future financings[201]. Revenue Generation - The company has not generated any revenue from product sales since its inception in 2019[45]. - The Company has not generated any revenue to date and does not expect to generate revenue from product sales in the foreseeable future[90]. - The company has not generated any revenue to date, with cash flows resulting from financing activities[201]. Research and Development - The company anticipates moving certain preclinical product candidates in oncology, fibrosis, and/or infectious disease programs into the clinic within the next 12 to 24 months[44]. - The company expects research and development expenses to increase substantially over the next several years due to ongoing clinical trials and regulatory compliance[107]. - Research and development expenses for the three months ended March 31, 2024, include costs for stock-based compensation and licensing agreements[174]. Financing and Capital - The company paid a prepayment of $51.6 million to the Backstop Parties on February 15, 2023, utilizing funds from AHAC's trust account[69]. - The company expects to utilize net proceeds from the Backstop Agreement and future debt and equity financings to fund operations into the third quarter of 2024, having received $1.4 million in cumulative proceeds from the Backstop Agreement as of March 31, 2024[144]. - The company borrowed $13.5 million in the first half of 2023, with $12.6 million remaining in short-term loans as of March 31, 2024[146]. - The company has a common stock purchase agreement allowing it to sell up to $75.0 million in newly issued shares to White Lion Capital LLC[169]. - The company entered into a Securities Purchase Agreement for the sale of up to three Senior Secured Convertible Notes with an aggregate principal amount of up to $27.0 million[187]. Risks and Concerns - The company is subject to risks common to early-stage biotechnology companies, including the need for significant additional capital for research and development efforts[49]. - The company faces substantial doubt about its ability to continue as a going concern due to its reliance on external capital and lack of revenue-generating ability at this stage[120][149]. - The company is subject to various risks, including the successful development and commercialization of product candidates, fluctuations in operating results, and competition in the biopharmaceutical industry[118]. Internal Controls and Governance - The company identified a material weakness in internal control over financial reporting due to inadequate staffing in its accounting department[221]. - The company plans to hire additional accounting personnel, including a new Chief Financial Officer, to address the identified material weakness[222]. - The company is subject to potential investigations by Nasdaq, the SEC, or other regulatory authorities due to its internal control weaknesses[223]. - The company is working on implementing remediation steps to improve its disclosure controls and procedures[222].

Financial Performance and Capital Requirements - The company has incurred significant net losses since inception and is expected to continue incurring substantial net losses for the foreseeable future[22] - The company requires substantial additional capital to finance operations, and failure to raise such capital may delay or reduce research and drug development programs[22] - The company may face increased regulatory costs and compliance requirements in connection with drug development, impacting financial performance[17] Regulatory and Compliance Issues - The company is subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expenses[26] - The company has identified a material weakness in internal control over financial reporting, which may affect the accuracy of financial condition reporting[24] - The company could be subject to investigations by Nasdaq, the SEC, or other regulatory authorities due to control deficiencies[1031] Internal Control and Governance - The company identified a material weakness in internal control over financial reporting due to inadequate staffing in the accounting department[28] - The company plans to hire additional accounting personnel and implement new controls to remediate the identified material weakness[29] - Current and future controls may become inadequate due to changes in business conditions, leading to undiscovered material weaknesses[1030] - Difficulties in developing or maintaining effective controls may negatively impact operating results and reporting obligations[1031] Ownership and Control - The company's principal stockholders and management own a significant percentage of common stock, exerting substantial control over shareholder matters[27] - The company qualifies as an "emerging growth company," which may make its securities less attractive to investors[31] Stock-Based Compensation and Valuation - The company recorded stock-based compensation expense of $0.6 million for the fiscal year ended December 31, 2023, primarily within general and administrative expenses[11] - The estimated fair value of stock options granted to non-employee directors was $3.73 per share, with a strike price of $10.00 per share[11] - The company utilized a Monte-Carlo simulation to value the Backstop Put Option Liability, with an estimated volatility of 100% and a risk-free rate of 4.4%[16] - The fair value of the 2023 Convertible Note was estimated using a Monte-Carlo simulation, with an estimated volatility of 50% and a risk-free rate of 5.3%[17] Segment and Reporting Structure - The company operates as a single reportable segment focused on developing therapeutic products in oncology, fibrosis, infectious diseases, and inflammation[19] - The company early adopted ASU 2020-06, simplifying the accounting for convertible instruments, effective January 1, 2023[21] - The company is evaluating the impact of ASU 2023-07 on its consolidated financial statements, which expands segment disclosures[22] Risks of Financial Reporting - The company may face material weaknesses in internal control over financial reporting, potentially affecting the accuracy and timing of financial reporting[1030] - Failure to remediate existing or future material weaknesses could result in loss of investor confidence and a decline in share price[1030] - A restatement of financial statements for prior periods could occur, potentially causing a decline in the price of common stock and warrants[1031] - The market opportunities for the company's product candidates may be relatively small, targeting patients ineligible for or who have failed prior treatments[22]